Question: You are interested in purchasing a machine that will save $200,000 per year before taxes. The cost of operating the machine, including maintenance, is $80,000

You are interested in purchasing a machine that will save $200,000 per year before taxes. The cost of operating the machine, including maintenance, is $80,000 per year. The machine, which costs $150,000, will be needed for five years after which it will have a salvage value of $25,000. The machine would qualify for a 7‐year MACRS property. What is the net present value of the cash flows generated from this machine at 15%? The firm’s income tax rate is 40%.

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